The income support system
S The income support system BACKGROUND PAPER
T Contents Summary 03 Frameworks for the welfare system 04 The iron triangle 04 The five levers 04 The tiers of assistance 05 The system of payments 07 General eligibility settings 07 Main benefits 09 Working for Families 17 Supplementary assistance 22 Hardship assistance 29 Obligations and Sanctions 33 Obligations 33 Sanctions 34 Financial incentives 35 Key concepts in financial incentives 35 Overall picture of income support 37 Example families 39 Key issues in the income support system 46 Recipients of income support 49 Recipients in the past five years 50 Key characteristics of working-age recipients of main benefits 53 Key characteristics of Working for Families recipients 54 Government spending 55 Further reading 57
- specific eligibility requirements
- work obligations
- payment rates
- cut-out points1
- income and asset tests (abatement)
- indexation settings.
A description of the current obligations and sanctions regime follows. We then describe some key concepts regarding financial incentives, including a description of personal income tax rates, and show how income support (and income tax) fit together. This description is then illustrated using four example families, and we show the impacts of the income support (and income tax) system on the incomes of and incentives to work for these families. This is followed by a brief summary of some of the key issues in the income support system that emerge from the description above.
We follow this with a summary of current recipient numbers and characteristics, and historical trends in government spending on welfare.
This paper is designed to function as a useful reference document. However, the system is highly complex with many interacting parts, and this paper is not comprehensive. For further detail on income support payments, visit Work and Income’s Manuals and Procedures (MAP) website: https://www.workandincome.govt.New Zealand/map/index.html. Many figures in this paper are based on the March 2018 benefit fact sheet: https://www.msd. govt.New Zealand/about-msd-and-our-work/publications-resources/statistics/benefit/ archive-2018.html.
1 The point at which a person’s payment is reduced to zero because of their income or assets is known as the ‘cut-out point’.
- The iron triangle.
- The five levers.
- The tiers of assistance. The iron triangle The iron triangle illustrates some key trade-offs in welfare policy (i.e. welfare objectives that are difficult to achieve at the same time). These trade-offs occur between three of the key objectives of a welfare system:
- Improving adequacy/alleviating poverty.
- Improving or maintaining incentives to work.
- Sustainable cost to government. The iron triangle highlights the difficulty of identifying welfare policies that achieve all three of the objectives above. With any given policy change, it is generally possible to achieve two of the three objectives at most. It is important to note that this framework takes a narrow and short-term perspective on cost. There is a broader perspective that would consider the flow-on impacts of changes in income support to other areas of government such as health, justice, tax revenue and education. This broader and longer-term perspective can substantially change the estimate of the overall cost to government.
- Other key objectives that are not part of the iron triangle (because there is not the same difficulty achieving them at the same time as others) include:
- improving the dignity and experience of people using the system
- supporting participation and inclusion in society
- supporting broader wellbeing, including the management of health conditions and disabilities, and further education and training. The five levers Another useful framework is the ‘five levers of the welfare system’. This framework identifies the key ‘levers’ that governments have to influence the welfare system. These levers are:
- gateways (e.g. eligibility settings)
- obligations and sanctions
- financial incentives
- case management
- services. This paper discusses the first three levers above.
- legislation (which sets the ‘rules’ for most of the system)
- payment rates and settings
- policies (which may or may not require changes to legislation)
- ministerial oversight
- governance structures
- organisational form
- performance measures. There has been some criticism of the five levers framework in that it misses many of the ‘soft’ levers that can be used to influence the welfare system. These include the varying levels of effort that the system requires of people to gain and maintain entitlement, driven by the complexity of forms, the channels to access the system, pre-benefit activities, the availability and ease of access to information about entitlements and the way that settings are applied (i.e. more or less aggressively) and people are treated.
- This paper is also primarily focused on the policy settings of the system i.e. the framework of rules that operates. We do not focus on the interpretation and administration of these settings, or the experiences of the users of the system. The tiers of assistance First tier The main working-age benefits in the New Zealand welfare system are based on a categorical system, which identifies the main reason for a person being without full-time paid work. The maximum rate of benefit varies according to the benefit type, the person’s age, and whether the person is single, partnered or a sole parent. Main benefits are known as the first tier of assistance. The key payments are:
- Jobseeker Support (JS), to support people who are unemployed and able to work, including those with short-term inabilities to work (at all or full-time) due to health conditions or disabilities
- Sole Parent Support (SPS), to support sole parents to care for children, and (once their youngest child is three) to support them if they are unemployed
- Supported Living Payment (SLP), to support people who are severely restricted in their capacity to work in the long term
- Youth Payment (YP), to support young people (16-17 years) without children, who are not supported by their parents
- Young Parent Payment (YPP), to support young people (16-19 years) with children. The rate of payment does not relate to the person’s previous income from employment; rather it is intended to provide an income to meet the cost of living, within a context that includes the availability of further income support, known as secondand third-tier assistance.
- Accommodation Supplement
- Working for Families tax credits, such as the Family Tax Credit (FTC) and Best Start Tax Credit (BSTC)
- Disability Allowance (DA)
- Childcare assistance (CCA)
- Winter Energy Payment (WEP). Third tier Third-tier assistance is tightly income and cash-asset tested. It is provided generally to people in financial hardship, and is available only for costs considered ‘essential’; it is often also known as ‘hardship assistance’. Third-tier assistance includes both ongoing payments (such as Temporary Additional Support [TAS]) and one-off payments (e.g. Special Needs Grants [SNGs]). Depending on the nature of the cost, one-off payments can be either interest-free loans that must be repaid, or non-recoverable grants.
- general eligibility settings for income support payments
- first-tier - main benefits
- second-tier - Working for Families payments
- second-tier - supplementary assistance
- third-tier - hardship assistance. This paper is focused on the income support system for people of working age. For comparative purposes, brief information on the support for retired people (New Zealand Superannuation [NZS]) is provided. NZS replaces main benefits for eligible people aged over 65. Superannuitants may also be eligible for further support from secondand third-tier assistance. This paper does not include descriptions of payments outside the welfare system, e.g. student loans and allowances, payments and subsidies in the health and education systems, and ACC. It also does not include many of the smaller payments (in the welfare system) for people in particular circumstances, such as those with health conditions and/or disabilities or on low incomes (some of which the Ministry of Social Development [MSD] administers on behalf of the health system, including the Community Services Card).
- General eligibility settings While different types of payments in the income support system often have different requirements, a set of general eligibility requirements applies to many of the payments. These relate to:
- residency in New Zealand
- the nuclear family as the unit of assessment
- income tests and asset tests
- stand-down periods. Residency in New Zealand Generally, people must have continually lived in New Zealand for two years or more since becoming New Zealand citizens or permanent residents (and be ordinarily resident in New Zealand) to be eligible for most income support payments (this is one year for Working for Families payments). There are exceptions for some groups such as refugees.2 Residency requirements for NZS are different and are described later in this paper. Nuclear family as unit of assessment The welfare system is assessed using the nuclear family. This means that adults are considered as single or as a couple, and dependent children3 are included. For example, rates of payment are generally determined by ‘family type’, with different rates for a single person, a couple, and single people and couples with dependent children (sometimes varying with the number of children, and sometimes not).
2 New Zealand also has reciprocal agreements with some other countries that allow for residence in these other countries to be recognised as residence in New Zealand for benefit and pension purposes. 3 When this paper refers to people or families with children, it refers to dependent children. If it is referring to adult children, this is stated.
T Families with children are based on ‘dependency’ rather than biological status, with an adult in a family being a principal caregiver of a child if they provide for the child’s day-to-day needs and the child is financially dependent on them.
This could include grandparents raising grandchildren, for example. Couples are defined as being married, in civil unions, or in de facto relationships. A de facto relationship is defined as two people living together as a couple in a relationship in the nature of marriage (or a civil union). Factors such as emotional commitment and financial interdependence are also considered.Any family members outside the nuclear family are generally not considered, even if they live in the same household, for example adult children living with their parents or extended family in the same house. Income and asset tests (abatement) Almost all income support in New Zealand is targeted on the basis of family income (and family assets), with the family defined as the nuclear family (i.e. adults and any dependent children). Income and asset tests are determined by a combination of the abatement settings of payments (how fast they are reduced) and the rates of the benefit payments. Generally, the full rate of a payment will be available to people earning up to a certain amount (known as the abatement threshold). Above this amount, payments reduce (abate) as people’s incomes increase. There are different ways that payments can reduce above the threshold. These are:
- gradually: for every dollar earned before tax, the payment is reduced by a portion of that e.g. on JS, for every $1 earned over the abatement threshold of $80 a week, your net payment drops by 70 cents – an abatement rate of 70%
- suddenly: above the income threshold you lose entitlement to the entire payment (a ‘cliff-face’), e.g. DA is only available to people earning less than $963.80 a week (for a couple), or
- tiered: there are multiple abatement thresholds and when your income exceeds one of them you lose a portion of your payment, e.g. CCA is paid at an hourly rate that reduces in four tiers (multiple cliff-faces). If you have one child you receive a subsidy of $5.13 per hour if you earn under $800 a week; this reduces to $4.09 if you earn between $800 and $1,200, then to $2.86 if you earn between $1,200 and $1,300, then to $1.59 between $1,300 and $1,400, and then $0 if you earn more than $1,400 a week.
There are pros and cons associated with each of these options. Gradual abatement means that people are generally better off overall i.e. their increases in income more than out-weigh the loss of their payments (if the abatement rate is not too high). However, gradual abatement means that people’s payments need to change with every change in income, including very small changes. This can be difficult for people whose incomes change frequently, and who are required to update Work and Income constantly (which is costly to both recipients and the administrators of the system). It also increases the chances of underand over-payments, and the risk of debt.
Sudden abatement means that people’s incomes can change below the threshold with no impact on their payments. However, when people’s incomes exceed the threshold, even if only by a small amount, they lose the entire value of the payments. This can mean that they are worse off overall than they were before their earned incomes increased. The pros and cons of tiered abatement are similar to those for sudden abatement, with the loss of the payment occurring in more gradual ‘steps’ as income increases, rather than in one go. As with sudden abatement, tiered abatement can result in people being worse off overall after an increase in earned incomes, particularly if their incomes move to only just above one of the thresholds.
0 9 Asset tests are also used to determine eligibility for some forms of income support in New Zealand, including some supplementary assistance and all hardship assistance. These tests operate in the same way as the income tests described above, as they usually have a threshold below which people are entitled to the full payment amount. Above this threshold people either lose all entitlement (sudden abatement) or lose part of the payment (gradual abatement). The point at which a person’s payment is reduced to zero because of their income or assets is known as the ‘cut-out point’. Above this point people are no longer entitled to the income support payment at all.
The cut-out point can change due to changes in payment amounts, abatement thresholds and/or abatement rates.
Some payments also have other ‘tests’ such as the In-Work Tax Credit. It has an ‘hours’ test that means that a sole parent must work for at least 20 hours a week to receive it (and a couple must work for at least 30 hours). This test also creates a ‘cliff-face’ of entitlement, with the entire payment lost if hours of work do not meet these levels. Stand-down periods Most main benefits have initial stand-down periods (or ‘non-entitlement periods’) where people cannot receive any main benefit payments – usually for one or two weeks depending on their average weekly incomes in the 6 or 12 months before they applied, and the number of dependent children they have.
The rationale for the stand-down is that people are expected to have sufficient savings to cover a short gap in income. The stand-down period is based on average weekly wages, with those earning under the average facing a one-week stand-down and those earning the average or above facing a two-week stand-down. The stand-down can be 13 weeks if a person voluntarily left their job without a good and sufficient reason or was dismissed for misconduct. Some people will not face a stand-down period; these include prisoners, refugees, and people with chronic recurring illnesses, in residential care, transferring between benefits and in temporary employment (if they have been employed for less than six months and they were on a main benefit immediately before this employment).Main benefits The different main benefits reflect the different circumstances of people needing income support. MSD administers main benefits. There are five main benefit types – these are:
- Jobseeker Support (JS)
- Sole Parent Support (SPS)
- Supported Living Payment (SLP)
- Youth Payment (YP), and Young Parent Payment (YPP)
- Emergency Benefit (EB)
- other.4 This section also briefly describes the settings for NZS, which are largely different from main benefits. 4 This paper does not describe some of the less common main benefits such as the Emergency Maintenance Allowance and Jobseeker Support Student Hardship.
T Main benefits are all income tested, but are not asset tested. Main benefits are taxed and are paid on a net basis. The ‘assessment period’ for main benefits is generally one week i.e. people’s incomes (and other circumstances) are assessed on a weekly basis to determine their eligibility for, and the payment rate of, main benefits. Recipients of SPS and SLP can choose to have assessments of their annual incomes instead. The payment rates of all main benefits are annually indexed (increased) to increases in the consumers price index (CPI) (excluding cigarettes and tobacco).5 These increases occur on 1 April in most years6 as part of a process known as the Annual General Adjustment, based on annual CPI growth to December the prior year.
Adjustments using the CPI are assumed to ensure that people can continue to purchase the same ‘basket of goods and services’ over time i.e. they maintain the real value of payments.
The abatement thresholds for main benefits are not indexed. There are currently (as at the end of March 2018) 273,387 working-age people receiving main benefits. This represents 9.3% of the total working-age population. There are currently around 168,275 dependent children in families receiving main benefits. Each of the main benefit types listed above is described briefly below. While not usually classified as a main benefit, this section also briefly describes NZS. Jobseeker Support JS was previously (pre-2013) known as the Unemployment Benefit and the Sickness Benefit. People are entitled to this benefit if they are unemployed and are seeking employment.
A person must be aged 18 years or over to receive JS.JS recipients must re-apply for this benefit each year (every 52 weeks). There are currently (as at the end of March 2018) 118,755 people receiving JS (43% of all working-age main beneficiaries, 4% of the working-age population). Of these:
- 53% are ‘work-ready’
- 47% have health conditions or disabilities – with 48% of this group’s primary incapacities classed as psychological or psychiatric conditions. Work obligations Work obligations can be full-time, part-time or deferred. Part-time and deferred work obligations may apply due to health conditions or disabilities. A current medical certificate must be provided to support an application for Jobseeker Support – Health Condition or Disability (JS–HCD) and there is generally a requirement for a new medical certificate at least every 13 weeks.
A sole parents whose youngest child is aged 14 years or over also receives JS and generally have full-time work expectations (though the abatement of their payment is not the same as for other JS recipients). More detail is provided in the section on SPS. 5 All future references to the CPI in this paper refer to the CPI (excluding cigarettes and tobacco). 6 If the CPI reduces (i.e. negative growth), payments are not adjusted.
1 1 Payment rates and cut-out points Table 1: Weekly (and annualised) payment rates, and income cut-out points, for Jobseeker Support Rate Net payment Gross payment Gross income cut-out points Single 18-19 years, at home $143.55 ($7,465) $160.39 ($8,340) $286 ($14,872) Single 18-24 years $179.44 ($9,331) $200.49 ($10,425) $337 ($17,524) Single 25+ years $215.34 ($11,198) $240.60 ($12,511) $388 ($20,176) Couple $358.88 ($18,662) $400.98 ($20,851) $593 ($30,836) Couple with children $384.50 ($19,994) $429.60 ($22,339) $630 ($32,760) Sole parent $334.05 ($17,371) $382.07 ($19,868) $635 ($33,020) In addition to being annually indexed to the CPI, net rates of JS for families with children were increased by $25 a week on 1 April 2016, as part of the Child Material Hardship package announced in Budget 2015.
Abatement JS has an abatement threshold of $80 a week before tax (so earnings up to this point do not reduce the payment rate). For every dollar earned above this, the net rate of JS reduces by 70 cents (a 70% abatement rate). The abatement threshold encourages a small amount of paid work (equating to just under five hours of work at the minimum wage7 ), and recognises that there are costs to work. The relatively high abatement rate of 70% (before tax, over 80% after tax) is designed to discourage part-time work and encourage full-time work.
The abatement threshold of $80 a week was last increased in 1996.
As inflation and wages have increased substantially since then, the abatement threshold has become relatively less generous. This means that the income test for JS has become relatively more stringent over time. Sole Parent Support SPS was previously (pre-2013) known as the Domestic Purposes Benefit. A person is entitled to this benefit if they do not have a partner and have at least one dependent child aged under 14 years. In the case of shared custody, only the parent with the greater parenting responsibilities can be paid SPS.
SPS is only available to people aged 20 years and over. SPS recipients must re-apply for this benefit each year (every 52 weeks). 7 Assuming a minimum wage of $16.50 an hour.
- 92% are female (and 8% are male)
- 53% have a youngest dependent child under five years (with 47% having a youngest dependent child aged between 5 and 13 years). Work obligations Work obligations are part-time with a youngest child between 3 and 13 years. For sole parents with a youngest child under three, there are work-preparation obligations. However, if a recipient has another child while receiving a main benefit, work-preparation obligations only apply for the first 12 months of the child’s life. After that, the recipient’s work obligations are based on the age of the next youngest child (the ‘subsequent child’ policy). A sole parent whose youngest child is aged 14 years or over receives JS rather than SPS, though the payment rates (and abatement settings) are the same as those of SPS. Payment rates and cut-out points Table 2: Weekly (and annualised) payment rate, and income cut-out point, for Sole Parent Support Rate Net payment Gross payment Gross income cut-out points Sole parent $334.05 ($17,371) $382.07 ($19,868) $635 ($33,020) In addition to being annually indexed to the CPI, the net rate of SPS was increased by $25 a week on 1 April 2016, as part of the Child Material Hardship package announced in Budget 2015. Abatement SPS has an abatement threshold of $100 a week before tax (so earnings up to this point do not reduce the payment rate). For every dollar earned above $100 and below $200 a week, the net rate of SPS reduces by 30 cents (30% abatement rate). For every dollar earned over $200 a week, net SPS reduces by 70 cents (70% abatement rate).
The abatement thresholds encourage a small amount of paid work (equating to around six hours of work, and 12 hours of work, at the minimum wage8 ), and recognises that there are costs to work. The relatively low abatement rate of 30% is designed to encourage part-time work (combined with a personal earnings exemption of $20 a week for childcare costs). The abatement threshold of $100 a week was last increased in 2010. However, since at least the early 1990s the abatement threshold has not increased at the same pace as inflation or wages, so has become relatively less generous over time. Again, this means that the income test for SPS has become relatively more stringent over time.
8 Assuming a minimum wage of $16.50 an hour.
- in two years, or
- never (if the recipient qualifies for simplified access to SLP e.g. due to their being totally blind, being terminally ill with a life expectancy of less than two years, having a severe intellectual or cognitive impairment or having a severe physical disability).
- There are currently (as at the end of March 2018) 92,473 people receiving SLP (34% of all working-age main beneficiaries, 3.1% of the working-age population). Of these:
- 91% are permanently and severely restricted in their capacity to work (with around a third of this group’s primary incapacity classed as a psychological or psychiatric condition)
- 9% are carers. Obligations There are generally no work obligations for people receiving SLP, although some recipients may have work-preparation obligations if they have been assessed as having the capacity to prepare for work.
9 Note that while the carer is not entitled to SLP in their own right, if their partner is entitled to SLP the couple will be paid the couple rate of SLP (and receive half the payment each).
T Payment rates and cut-out points Table 3: Weekly (and annualised) payment rates, and income cut-out points, for Supported Living Payment Rate Net payment Gross payment Gross income cut-out points Single 16-17 years $217.80 ($11,326) $243.35 ($12,654) $469 ($24,351) Single 18+ years $269.15 ($13,996) $303.40 ($15,777) $542 ($28,166) Couple $448.56 ($23,325) $501.18 ($26,061) $798 ($41,494) Couple with children $474.18 ($24,657) $529.82 ($27,551) $835 ($43,397) Sole parent $379.19 ($19,718) $436.78 ($22,713) $699 ($36,340) SLP is paid at a significantly higher rate than JS–HCD (by around $45 to $90 a week), to reflect the permanent or longer-term nature of the health condition, injury or disability and its ongoing costs.
However, in practice, drawing a line between the eligibility for the two payments can be challenging for both Work and Income staff and medical practitioners. In addition to being annually indexed to the CPI, the net rate of SLP for families with children was increased by $25 a week on 1 April 2016, as part of the Child Material Hardship package announced in Budget 2015.
Abatement SLP has the same abatement thresholds and rates as SPS. This reflects the ’15-hour rule’ associated with SLP and allows recipients to work a small amount without penalty (there is also a $20-a-week personal earning exemption for income earned from personal effort). The abatement thresholds were last increased in 2010. As inflation and wages have increased substantially since then, the abatement threshold has become relatively less generous. Youth Payment and Young Parent Payment YP was previously (pre-2012) known as the Independent Youth Benefit. People are entitled to this benefit if they are aged 16-17 years and are not supported by their parents.
YPP was introduced in 2012. People are entitled to this benefit if they are aged 16-19 years and have dependent children, whether they are single or partnered. People may still be supported by their parents if they are receiving this payment and are under 18; however, there is a parental income test in this case.
All YP and YPP recipients are part of the Youth Service, which provides more intensive case management and support. There are currently (as at the end of March 2018) 3,080 people receiving YP and YPP.
1 5 Obligations Recipients of YP and YPP do not have work obligations – they have educational and budgeting obligations i.e. they must be attending education or training, and attend a budgeting course. Recipients of YPP also have parenting obligations i.e. they must attend a parenting course. The educational obligations apply for YPP recipients from when their children are six months old (if they are in a Teen Parent Unit) or 12 months old (if they are not).
Recipients of YP and YPP can also receive incentive payments where they meet these obligations, paid at $10 a week for each payment.
Payment rates and cut-out points The rates for YP and YPP are the same as for JS and SPS. YP and YPP are annually indexed to the CPI, and the net rate of YPP was increased by $25 a week on 1 April 2016, as part of the Child Material Hardship package announced in Budget 2015. Abatement YP and YPP have different abatement settings from the other main benefits, similar to the Student Allowance, to reflect the absence of work obligations and the requirement to be in education. There is an abatement threshold of $217.22 a week, allowing for a reasonable amount of part-time work (around 13 hours at the minimum wage10 ).
However, any earnings above this point are abated at 100% ($1 for $1) until they earn $267.22 a week (singles) or $317.22 a week (couples), to discourage work above this level.The abatement threshold is annually indexed to the CPI to maintain its real value, and to ensure it aligns with the Student Allowance personal income threshold. Emergency Benefit EB is available to people in hardship and who are unable to earn enough income for themselves and their families and cannot receive another benefit. EB is income and asset tested. Reasons for hardship may include:
- a health condition, injury or disability
- their domestic circumstances
- their age (e.g. 16 or 17 years)
- any other reason (e.g. their residence status). To be eligible, recipients must be 16 years or older and ordinarily resident in New Zealand. There are currently (as at the end of March 2018) 907 people (of working-age) receiving EB and a total of 4,419 people (of all ages) receiving EB.
Obligations The obligations for EB are the same as those for the other main benefits. Recipients of EB are assessed to find the ‘analogous benefit’ that applies to them (i.e. the main benefit type that most closely suits their circumstances). The analogous benefit will determine their obligations e.g. if the analogous benefit is JS the recipient is likely to have an obligation to seek work. 10 Assuming a minimum wage of $16.50 an hour.
T Payment rates and cut-out points EB is generally paid at the maximum rate of the analogous benefit, with the same income test.
Abatement The abatement is also determined by the analogous benefit. New Zealand Superannuation NZS is a universal payment to citizens and permanent residents aged 65 years and over, subject to their meeting residency requirements. The residency requirements are that they have been resident in New Zealand for at least 10 years since the age of 20, five years of which must be after the age of 50, and that they are ordinarily resident in New Zealand on the date of the application.
NZS is indexed to the greater of growth in the CPI or the net (after tax) average wage (rather than just the CPI as other main benefits are).11 In practice, this means that NZS keeps pace with growth in net average wages over time. There are currently (as at the end of March 2018) 755,364 people receiving NZS.12 There are generally no obligations for, or abatement of, NZS. However, NZS is abated if a ‘non-qualified partner’ is included in the benefit rate and/or if recipients have an overseas pension that is deemed to be similar to NZS (and subject to the ‘direct deduction’ policy13 ).
Payment rates Table 4: Weekly (and annualised) payment rates for New Zealand Superannuation Rate Net payment14 Gross payment Single, living alone $400.87 ($20,845) $463.04 ($24,078) Single, sharing $370.03 ($19,242) $425.55 ($22,129) Couple $616.72 ($32,069) $701.52 ($36,479) As NZS is indexed to wage growth, and wages tend to grow faster than inflation over time, this means that NZS payment rates have increased more than benefits, and there is now a substantial gap between the payment rates.
11 As long as the married rate of NZS is between 66% and 72.5% of the net average wage. 12 This number also includes 7,750 people receiving Veteran’s Pension, which MSD also administers. 13 The Social Security Act (sections 187-191) sets the criteria that decide whether an overseas pension should affect a recipient’s NZS (or other benefits). If an overseas pension meets this criteria, the recipient’s NZS is reduced by one dollar for every one dollar received from this overseas pension – known as direct deduction.
14 Assuming tax rate ‘M’.
- Family Tax Credit (FTC)
- In-Work Tax Credit (IWTC)
- Minimum Family Tax Credit (MFTC)
- Parental Tax Credit (PTC) and Best Start Tax Credit (BSTC). Working for Families payments are non-taxable, and are paid to the primary caregivers of children. If children are in a shared-care arrangement, FTC and BSTC can be paid proportionately to both parents (with a minimum amount of care required of one-third of the child’s time).
The ‘assessment period’ for Working for Families payments is annual i.e. people’s incomes are assessed on an annual basis to determine their eligibility for, and the payment rates of, Working for Families payments. If people wish to receive their payments fortnightly, they need to provide estimates of their annual incomes as the basis for these payments. These estimates are re-assessed at the end of the tax year. Some Working for Families payment rates are indexed to inflation, and some are not. These settings are described under each payment below.
0% 10% 20% 30% 40% 50% 60% 70% 80% 100% Apr-90 Apr-91 Apr-92 Apr-93 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Jul-18 New Zealand Super Married Couple Jobseeker Support 25 years and Over Sole Parent Support Supported Living Payment – Single 18 years and over Jobseeker Support - Married Couple with Children
T The abatement thresholds for Working for Families payments are not indexed. The abatement threshold for FTC (and IWTC) was increased to $35,000 in 2006. This significantly increased the eligibility for, and amount paid to, lowand middle-income working families. This threshold was indexed to inflation and was increased to $36,827 in 2008. In Budget 2011 the next Government began to reduce these abatement thresholds gradually (to a planned final amount of $35,000 a year) to increase the targeting of these payments to lower-income families. As part of the Families Package on 1 July 2018, the abatement threshold for FTC (and IWTC) will increase to $42,700 a year (from the current amount of $36,350).
The payments are abated in a set order (one after the other), starting with FTC, then IWTC (and the previous PTC last). BSTC has a separate abatement threshold of $79,000 a year, and is not indexed. People must be over the age of 16 to receive Working for Families payments. These payments are described in more detail below. More information on Working for Families tax credits (by income) can be found here: http://www.ird.govt.New Zealand/ resources/9/7/97ef650f-e6ff-4d25-9930-4a3167aecd3c/ir271-may-2018.pdf Family Tax Credit FTC is an income-tested payment that goes to families with children, including those receiving main benefits.
People receiving main benefits can choose to receive their FTC through MSD (along with their benefits and any other payments) or from IR.
It is not available to carers of children receiving Orphan’s Benefit (OB), Unsupported Child’s Benefit (UCB) or Foster Care Allowance (FCA), for those children. FTC was introduced as part of the introduction of Working for Families in Budget 2004, replacing an existing payment (Family Assistance) and increasing eligibility for lowand middle-income working families in particular. In the 2016 tax year 297,900 families received FTC. Payment rates and cut-out points FTC will be increased as part of the Families Package on 1 July 2018 – the table below shows the current and future weekly (annual) payment rates.
Table 5: Weekly (and annual) payment rates for Family Tax Credit Eldest child Age of child Current From 1 July 2018 Increase 0-15 years $92.73 ($4,822) $113.04 ($5,878) +$20.31 ($1,056) 16-18 years $101.98 ($5,303) +$11.06 ($575) Second or subsequent child Age of child Current From 1 July 2018 Increase 0-12 years $64.44 ($3,351) $91.25 ($4,745) +$26.81 ($1,394) 13-15 years $73.50 ($3,822) +$17.75 ($923) 16-18 years $91.25 ($4,745) Nil
- Current rates: – One child – around $58,000. – Two children – around $72,000. – Three children – around $87,000.
- From 1 July 2018: – One child – around $66,000. – Two children - around $85,000. – Three children – around $104,000. FTC is indexed to the CPI after cumulative changes in the CPI reach 5% (not annually). FTC was last increased due to the CPI in 2012, and will be increased on 1 July 2018 as part of the Families Package (this will ‘restart’ the calculation of the next inflation adjustment). Abatement FTC will be abated at 25% (25 cents in the dollar) on taxable family income over $42,700 a year (gross, meaning before tax) from 1 July 2018. This abatement threshold is not indexed. In-Work Tax Credit IWTC is an incomeand work-tested payment for families with children who do not receive main benefits and who work a minimum number of hours a week (20 hours for sole parents and 30 hours for couples). The work-hours test is assessed on a week-by-week basis. IWTC was introduced as part of Working for Families in Budget 2006, replacing an existing payment (Child Tax Credit) and increasing financial assistance for lowand middle-income working families in particular.
It is also available to carers of children receiving OB, UCB or FCA (who cannot receive FTC). In the 2016 tax year 210,900 families received IWTC. Payment rates and cut-out points Table 6: Weekly (and annual) payment rates for In-Work Tax Credit For families with 1-3 children For families with 4+ children $72.50 ($3,770) +$15 per child ($780 per child)
- Current rates: – One child – around $75,000. – Two children – around $90,000. – Three children – around $105,000.
- From 1 July 2018 (children under 12): – One child - around $81,000. – Two children - around $100,000. – Three children – around $120,000. The IWTC payment rate is not indexed to the CPI and was last increased (from $60 a week to $72.50 a week) in Budget 2015 as part of the Child Material Hardship package. Abatement IWTC is abated at 25% (25 cents in the dollar) once FTC has been fully abated away (so above the FTC income cut-out point).
Minimum Family Tax Credit Minimum Family Tax Credit (MFTC) is an incomeand work-tested payment for families with children who do not receive main benefits and who work a minimum number of hours a week (20 hours for sole parents and 30 hours for couples). It ‘tops up’ the incomes of low-income families to ensure that they are better off in work than receiving main benefits. MFTC was introduced in 1989, but was modified as part of the Working for Families reforms of 2004-2006. In the 2016 tax year 4,100 families received MFTC. Around 80% of MFTC recipients are sole parents.
Payment rates, abatement and cut-out points MFTC guarantees a net (after-tax) minimum income of $503 a week ($26,156 a year) – the gross (before tax) figures are $587 and $30,508, respectively.
MFTC is designed differently from the other Working for Families payments as it is a guaranteed minimum income tax credit. This means that it tops up a family’s income to a set amount. Once a family’s income exceeds this amount, MFTC is longer paid. This means that it has an effective abatement rate of 100%.
For example, a sole parent working 20 hours a week on the minimum wage ($16.50 per hour) would be entitled to around $212 a week of MFTC. They would also be entitled to a further $72.50 a week from IWTC (if they have between one and three children). The combination of these payments means that they are better off than they would be if they remained on a main benefit while working (as they would still be entitled to an abated [reduced] main benefit payment working 20 hours on the minimum wage). However, if they work more than 20 hours, their overall income will not increase as their MFTC will decrease by $1 for each extra $1 of income earned from their job.
They would not gain from increasing their hours of work until they were working more than around 35 hours a week while earning the minimum wage.
2 1 The MFTC payment rate is not explicitly indexed, but the formula that calculates the payment rate means that MFTC must maintain a certain gap between main benefits and work – this means that it tends to increase as benefits are indexed to inflation. The MFTC payment rate was also increased as part of the Families Package on 1 April 2018, to take account of WEP (and ensure that families with children remained better off in work despite losing WEP when they move off a main benefit). Parental Tax Credit PTC is an income-tested payment for 10 weeks after a newborn arrives, for families not receiving main benefits or paid parental leave.
It is paid at $220 a week, and abated after both FTC and IWTC have fully abated (i.e. above the cut-out point of IWTC). PTC was introduced in 1999, before paid parental leave was introduced in 2001, and will cease to exist for children born on or after 1 July 2018 as it is being replaced by BSTC as part of the Families Package. Best Start BSTC is a universal payment to support families with children in the first year of children’s lives. For the second and third years of children’s lives the payment is targeted to lowand middle-income families. BSTC starts after any paid parental leave payments from IR, and is also available to carers of children receiving OB, UCB or FCA.People receiving main benefits can choose to receive their BSTC through MSD (along with their benefits and any other payments) or from IR. All new recipients can also apply for BSTC through the Government’s SmartStart online service for expecting and new parents. BSTC will be introduced on 1 July 2018 as part of the Families Package. BSTC will be received by the families of the around 60,000 to 65,000 babies born each year in New Zealand (after 1 July 2018). Payment rates and cut-out points BSTC is $60 a week ($3,120 a year). The cut-out point for BSTC depends on the number of children in a family aged between one and two years. Two examples of cut-out points for BSTC, for families with children under three, are provided below:
- One child between one and two years of age – around $93,000.
- Two children between one and two years of age – around $108,000. The BSTC payment rate will have the same indexation settings as FTC (indexed after a cumulative increase in the CPI of more than 5%).
Abatement BSTC is only abated during the second and third years of a child’s life, and is abated at 21% above an annual gross taxable family income of $79,000. This abatement threshold is not indexed.
T Supplementary assistance Supplementary assistance is designed to help low-income people to meet particular costs, such as those of housing, childcare and heating, and those arising from health conditions or disabilities. Almost all supplementary assistance is income tested, and some is also asset tested, to ensure that it is targeted to people with few additional resources.
Supplementary assistance is non-taxable and available to both people receiving main benefits and those working on low (and sometime middle) incomes.This section covers most of the main supplementary assistance payments administered by MSD15 , including:
- housing assistance – Accommodation Supplement (AS) and Income-Related Rent Subsidy (IRRS)
- childcare assistance (CCA) – Childcare Subsidy and Out of School Care and Recreation (OSCAR) Subsidy
- Winter Energy Payment (WEP)
- Disability Assistance – the Disability Allowance (DA) and Child Disability Allowance (CDA), and
- Orphan’s Benefit (OB) and Unsupported Child’s Benefit (UCB). These are described below.
Housing assistance Accommodation Supplement AS is an incomeand asset-tested payment to help with the cost of housing.
It is available to both people receiving main benefits and those working on low and middle incomes, to help with costs from the private housing market. It is calculated as a partial contribution to families’ housing costs. A certain amount of housing costs needing to be paid by families before the AS is available (known as the ‘entry threshold’). Above the entry threshold housing costs are subsidised by the AS by 70 cents for every dollar of housing costs (known as the 70% co-payment). This co-payment is available up to a maximum amount of AS payment. Any further housing costs above the maximum amount need to be met by families.AS was introduced in 1993 (replacing the more limited Accommodation Benefit). It increased substantially as part of the Working for Families changes in 2004-2006 and then again as part of the Families Package from 1 April 2018. There are currently (as at the end of March 2018) 279,283 people receiving AS. Of these:
- around 67% also receive main benefits
- around 14% also receive NZS or Veteran’s Pension
- around 19% are non-beneficiaries. Of all main benefit recipients, around 66% also receive AS. 15 MSD administers a significant number of other supplementary payments such as Funeral Grants and House Modification Funding. More information can be found on Work and Income’s Manuals and Procedures (MAP) website.